K. Liu's Week in Review
It was a quiet week in software land as the second quarter drew to a close. In the supply chain space, Descartes Systems Group (DSGX) continued to execute upon its M&A strategy, acquiring Switzerland-based STEPcom for $19.6 million in cash. STEPcom serves over 600 customers that utilize its business-to-business platform to connect, collaborate, and exchange electronic data with their trading partners. On the earnings front, Progress Software (PRGS) was the lone reporting company we tracked this week. Progress delivered Q2 ’19 results above expectations, largely due to earlier than anticipated renewals of several large OEM deals within its DCI segment. Management also indicated that its OpenEdge business outperformed for the third consecutive quarter, benefiting in part from the recent acquisition of Ipswitch. Of note, anticipated cost synergies of $15.0 million associated with the acquisition have largely been completed, and Ipswitch remains on plan from a revenue and bookings perspective. Reflecting the strong performance in Q2, management raised its non-GAAP operating margin and EPS expectations for the year and maintained its prior revenue outlook. Several days prior to the earnings release, Progress also announced the appointment of Loren Jarrett as General Manager, Developer Tooling. Ms. Jarret previously served as the company’s Chief Marketing Officer and will now have responsibility for all facets of the Developer Tooling business. The table below depicts Progress’ share price performance for the week, actual results versus expectations, and subsequent estimate revisions by the Street for Q3 and FY ’19.
Earlier this week, the United States Postal Service (USPS) published its Monthly Trial Balance for May. As those who follow our research on Stamps.com (STMP) may be aware, the PC Postage data included in the filing has historically provided a glimpse into how the company’s quarter could unfold. While the end of an incentive agreement with the USPS now limits the correlation to an extent, PC Postage revenue growth of 12.1% thus far in Q2 bodes well for outperformance relative to Street expectations, in our opinion. Of course, this is not altogether significant given the anticipated curtailment of reseller revenue shares in 2H ’19 and beyond. Also tangentially related to Stamps.com, FedEx reported its Q4 ’19 results this week, reflecting higher than anticipated earnings on in line revenues. While ongoing trade disputes and the termination of a contract with Amazon present headwinds to the company’s Express segment and overall expectations for FY ’20, management anticipates strong growth from its Ground network and only minimal margin compression despite investments to support e-commerce growth, expand residential delivery to seven days, and in-source SmartPost volume. Of note, FedEx expects the parcel market to double in size to over 100 million packages per day by 2026 in the U.S. alone. We continue to view FedEx as a potential strategic partner for Stamps.com.
Several executive moves were announced this week with the most significant changes occurring at Shutterstock (SSTK), which licenses stock images and other digital content to creative professionals. The company announced the departure of Co-Chief Operating Officer and Chief Financial Officer, Steven Berns. Shutterstock’s Chief Accounting Officer, Steve Ciardiello, has been named interim Chief Financial Officer, while Stan Pavlovsky, who joined the company three months ago as Co-Chief Operating Officer and Head of Strategic Operations, has been named President and Chief Operating Officer. Elsewhere, Pegasystems (PEGA) appointed Carlos Fuentes as its Chief Information Security Officer. Mr. Fuentes previously served as Vice President of Security and Data for the U.S. Payment System at the Federal Reserve Bank of New York. Lastly, Agilysys (AGYS) announced the retirement of Vice Chairman Keith Kolerus from its Board of Directors, which will be reduced to seven members effective with his departure.
Mergers and Acquisitions
Descartes Systems Group (DSGX) has acquired STEPcom, a Switzerland-based business-to-business supply chain integration network, for approximately $19.6 million in cash.
Over 600 customers utilize STEPcom to connect, collaborate, and exchange electronic data with their trading partners.
No details pertaining to anticipated top or bottom line contribution were provided.
Earnings Releases
Progress 2019 Second Quarter Results Exceed Guidance
Progress Software (PRGS) reported Q2 ’19 results above expectations and raised its non-GAAP EPS guidance for FY ’19.
Non-GAAP revenue of $103.5 million (+11.3% Y/Y) exceeded management’s $96.0-$99.0 million guidance and consensus of $98.2 million. Non-GAAP operating income of $38.9 million (37.6% margin) was above consensus of $34.1 million. Non-GAAP EPS were $0.65, beating guidance of $0.55-$0.57 and consensus of $0.57.
Much of the outperformance was driven by earlier than anticipated renewals of several large OEM deals within the DCI segment as well as a third consecutive quarter in which OpenEdge achieved better than expected sales.
The AD&D segment rebounded from a disappointing Q1 with bookings up 20% sequentially and up 4% Y/Y.
Progress has already completed the bulk of the $15 million in cost synergies anticipated from the acquisition of Ipswitch, and management is pleased with the acquired company’s bookings and revenue performance so far.
ACV from the DCI segment is still expected to be $32-$33 million in 2019.
Management’s guidance for Q3 includes non-GAAP revenue of $109.0-$112.0 million, in line with consensus of $110.9 million, and non-GAAP EPS of $0.68-$0.70, above the Street’s $0.66.
For FY ’19, management reaffirmed its prior revenue guidance of $422.0-$428.0 million and increased its non-GAAP EPS guidance from $2.46-$2.52 to $2.52-$2.57.
Notable News
Agilysys Announces Retirement of Board of Directors Vice Chairman Keith Kolerus
Agilysys (AGYS) announced that Keith Kolerus has elected to retire as Vice Chairman of the Board of Directors for personal reasons, effective June 30, 2019.
The Boards has been reduced from eight to seven members effective with Mr. Kolerus’ retirement.
Pega Names Carlos Fuentes Chief Information Security Officer
Pegasystems (PEGA) appointed Carlos Fuentes as Chief Information Security Officer, a newly created role in which Mr. Fuentes will be responsible for the company’s information security strategy and implementation.
Mr. Fuentes joins the company from the Federal Reserve Bank of New York where he served as vice president of security and data for the U.S. Payment System.
Progress (PRGS) announced that Loren Jarrett has been appointed General Manager, Developer Tooling, replacing Faris Sweis who is leaving the company to pursue other interests.
Ms. Jarrett will be responsible for all facets of the Developer Tooling business, including sales, demand generation, engineering, product management, product marketing, customer success, support, and developer relations.
Ms. Jarrett previously served as the company’s Chief Marketing Officer.
Shutterstock Announces Management Changes
Shutterstock (SSTK) announced that Co-Chief Operating Officer and Chief Financial Officer Steven Burns is leaving the company, effective immediately.
Steve Ciardiello, the company’s Chief Accounting Officer, has been named interim Chief Financial Officer.
Stan Pavlovsky, the company’s other Co-Chief Operating Officer and Head of Strategic Operations, has been named President and Chief Operating Officer.
Disclosure(s):
The analyst, a member of the analyst’s household, and/or an account in which the analyst exercises discretion hold(s) a long position in the common stock of Stamps.com (STMP).